The government of a large U.S. city recently established a“living wage law” that

Question

The government of a large U.S. city recently established a“living wage law” that, beginning January 1 of nextyear, will require all businesses operating within city limits topay their workers a wage no lower than $8.50 per hour. Thecurrent equilibrium wage for fast-food workers is $7.50 per hour inthis city. Predict what will happen to each of the followingbeginning on January 1 of the next year:

1. The quantity of labor supplied by fast-food workers
2. The quantity of labor demanded by fast-food producers

Explanation / Answer

(1)The quantity of labor supplied by fast-food workers: the quantity of labor supplied will increase because an increase inincome potential results in more people willing to do it. Whensomething becomes more profitable, it becomes more demanded. (2)The quantity of labor demanded by fast-food producers: The quantity of labor demanded will decrease or remain the same,because the expense per person number would have gone up. Whensomething is more expensive (labor costs), demand for it (labor)goes down.

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